A History of the Federal Reserve, Volume 1

Meltzer, a monetary economist at Carnegie Mellon, wrote a documentary history of the Federal Reserve from its 1913 founding to 1951, working from the institution's own minutes, memoranda and internal correspondence.

The method is to establish what policymakers actually believed and said at each decision point rather than to evaluate outcomes retrospectively. This produces the book's main contribution: an account of the intellectual framework the Federal Reserve operated under, particularly the real bills doctrine, which held that credit extended against genuine commercial transactions could not be inflationary and that the central bank's role was to accommodate the needs of trade. Meltzer shows that this doctrine, combined with the use of member bank borrowing and nominal interest rates as indicators of monetary conditions, led the Federal Reserve to conclude that policy was easy during the sharpest monetary contraction in American history.

The Depression chapters are the core. Meltzer establishes that the Federal Reserve had the tools and the gold to prevent the contraction, that individual officials including some at the New York bank argued for expansion, and that the institution's structure, divided between the Board and twelve reserve banks with no clear authority, prevented action. He is somewhat more sympathetic than Friedman and Schwartz to the constraints officials perceived, while reaching the same conclusion about the outcome.

Later sections cover the 1937 recession following reserve requirement increases, the wartime pegging of interest rates, and the 1951 Treasury-Federal Reserve Accord that restored the central bank's independence.

The book is long, technical and written for economists. It assumes the reader knows the monetary economics. A second volume covers 1951 to 1986. Readers wanting a shorter treatment should go to Friedman and Schwartz's Monetary History, which covers overlapping ground with a stronger thesis and less institutional detail.